The Modernization Theory Of Economic Development Economics Essay

Economic growing can be defined as the increase in a states ‘ gross domestic merchandise ( GDP ) . Gdp is deemed the most of import index as it can be used for comparing intents across economic systems or in the same economic system at varied clip periods. When a state records a positive economic growing its production possibility frontier curve displacements to the right and this does non vouch its economic development. Economic growing is non synonymous to human development which is realized when a state or state ‘s citizens have better life criterions and can easy fulfill their basic demands. Some states such as Congo may enter higher economic growing but slowdown behind in every bit far as economic development is concerned due to political instability or struggles. For a state or state to be said to hold developed economic wise, so it must set into consideration the environmental every bit good as human facets or factors such as its citizen ‘s degree of instruction, their wellness position, good administration, observation of human rights every bit good as authorization of the female gender. Assorted theories have been developed to explicate economic development in states with the major theories being the dependence theory, modernisation every bit good as neo-liberalism.

Modernization theory

Harmonizing to the modern development thought, economic development was thought to emanate from economic growing although industrialisation and political modernisation were included. Political modernisation included state edifice every bit good as societal modernisation where entrepreneurship was embraced. The modernisation theory emanates from technological promotion or alteration. A state is said to be modernized when it has embraced modern and advanced engineering. Economic development besides depends on other states. The modern theory of economic development was developed in the 1960 ‘s to explicate why some states were more developed while others were non. For a state to go developed harmonizing to this theory, it must alter its traditional attitudes, values every bit good as establishments. Accomplishment in the economic sense is achieved when people adopt attitudes and values that favor difficult work, salvaging, efficiency and entrepreneurship which are merely found in modern societies. This theory argues that a state remains developing for every bit long as it embraces traditional imposts and civilization which prohibit single accomplishment and guarantee that blood-related dealingss are upheld.

Japan is one of the states that have been identified as a clear illustration of the modernisation theory of economic development. Its economic development is thought to hold emanated from it ‘s encompassing a national work ethic where all people were committed to difficult work. The history of Japan ‘s modernisation dates back to the Meiji epoch. This is one of the most studied epochs in Nipponese history. The Meiji epoch began in 1868 after the coming into power of Mutsuhito taking over the mantle from his male parent Emperor Komei and presenting structural reforms aimed at overhauling Japan. The first measure in this was the debut of the Five Charter Oath. Core to this was the accent on instruction and technological promotion ; “ knowledge shall be sought throughout the universe so as to beef up the foundations of imperial regulation. ” ( Jansen & A ; Hall 1989: 495 ) . During this period, the Nipponese authorities initiated a plan that would see 100s of foreign experts from the western states parading to Japan to offer specialised preparation on assorted topics runing from English, technology and the military amongst others. In the chase of the judicial admission of the Fifth article in the Charter Oath, 1000s of Nipponese pupils profiting from authorities subsidies were sent to America and besides in Europe to see firsthand the western oriented instruction. In add-on to this, Japan would besides encompass western economic patterns that would help in its passage to going the first industrialised state in Asia. It adopted the construct of market economic system, this being a extremist displacement from the bid economic system that had placed all the cardinal sectors of the economic system on the custodies of the authorities corporations. Other reforms ranged from the modernisation of the banking sector, reforming of the revenue enhancement regimes to the fusion of the national currency. All these steps had an consequence of making a modern advanced economic system that would in a few decennaries be amongst the most developed states in the universe. A critical expression at Japan ‘s economic history reveals that whereas western constructs and engineering were sought, the cardinal factor behind this drift was the on the job civilization that was instilled by the Meiji swayers. Indeed, the authorities had spared no attempt in edifying the public on the demand to play an active function in edifice of the economic system and honoring private entrepreneurship with selective subsidies. ( Jansen & A ; Hall 1989: 458 ) .

Modernization theory argues that hapless states can alter their position by increasing their economic growing and following alterations in every bit far as their beliefs, values and attitudes towards work are concerned. Walt Rostow ‘s theory of economic development is a clear or perfect illustration of the modernisation theory. Rostow argued that the major disincentive of economic development was the fatalistic traditional values where economic adversities are viewed as inevitable or ineluctable facts of life. Peoples in such societies do non see the demand for difficult work as harmonizing to them, their quandary is predetermined. Rostow argues that every society undergoes five major phases before it attains the highest economic development degree. The five additive phases are what see a state emerge from poorness to economic dependence and development.

Harmonizing to Rostow, the first phase of development is the ‘traditional or subsistence economic system ‘ which is strictly based on agribusiness as the agency of production. The population growing rate is minimum and there are small fabrication procedures. Modern scientific discipline is limited and people seek religious attitudes to explicate the physical universe. There is besides minimum societal mobility with the powerful having the factors of production. ( Preston 1996:171 ) . The 2nd phase is the ‘precondition to take off ‘ where people start to follow industrialisation and more machinery used. Modern scientific discipline starts to be embraced at this phase. Interactions with other developed states lead to the acceptance of new techniques. At this phase the population besides rises. Infrastructure is developed and industries start to boom. The 3rd phase is the ‘take off phase ‘ which is precipitated by technological promotion though political environment besides plays a major function. Investing additions by a big magnitude and new industries are established. An entrepreneurial category expands and net incomes are protracted back into the economic system through the increased investing. The employment rates rise and the national income is non left buttocks. The 4th phase of development harmonizing to Rostow is ‘the thrust towards adulthood ‘ . This phase is experienced by the increased spread of modern engineering which spreads across the full economic system. Here, the national income rises by 10-20 % and the economic system can bring forth as much industrial equipment as possible. There are sufficient entrepreneurial every bit good as proficient accomplishments to bring forth anything in the society. In this phase, the economic system diversifies, service industries develop and population growing stabilizes. The concluding phase is the ‘age of mass ingestion ‘ where the industrial system has advanced greatly. The population growing slows down at a considerable rate. There is a high production and ingestion of consumer goods. At this phase, people can devour beyond their demands as production is intense. Crude manners of production at this phase have been substituted with urban accomplishments and more people work in offices. More resources are channeled to other countries like on societal security every bit good as societal public assistance ( Preston 1996:175 ) .

Rostow ‘s theoretical account or phases of development face huge unfavorable judgment with some disregarding it as being based on mere historical happenstance. The theoretical account is besides viewed as holding been oversimplified and out dated. There are assorted facets that have been overlooked and the fact that it is based on informations collected in the 60s via medias its application in the recent times. Changing alterations have taken topographic point from when the information was collected and today ( Dompere & A ; Ejaz 1995: 87 ) .

Rostow is besides condemned for presuming that all states or states have similar resources, population every bit good as clime. Uniformity in every bit far as development is concerned can non be observed when there are discrepancies in both the natural every bit good as the human resources. The motion from the traditional phase to the take off phase calls for capital injection which could be inform of foreign debts. Refund of such debts may interfere with clip a state gets into the following phase, a factor that he ignored. Rostow ‘s theoretical account is besides criticized on the footing that it fails to admit that the development of one state could be at the disbursal of another for case through the procedure of colonisation every bit good as imperialism.

He besides failed to bespeak the demand of a fiscal substructure which could impart the nest eggs made to investing. Again, there was no warrant that the investing made would take to economic growing. Some investings could hold been in vain or unproductive. The demand for other substructures like instruction, roads, tracks and communicating were besides undermined and they are of import to register economic development. He emphasized on investing though he did non bespeak if it was to be done expeditiously or it was used on luxury goods. The statement that states would larn and follow better production means that would guarantee economic development has failed the trial of clip as some states remain in the initial phases of development though others continue to progress.

The theoretical account is besides criticized on the evidences that it is ‘Anglo centric ‘ and merely based on what was experienced in North America and Western Europe. ( Saldana-Portillo 2003: 42 ) . It besides fails to take history for the racial differences although it is clear that there is a correlativity between one ‘s ethnicity and their prosperity degrees. The theoretical account can non be used for prognostic intents as it is based on historical informations and there is no clear cut manner to explicate the clip that each phase takes. Rostow ‘s statement that all states must follow these phases was proved incorrectly as some states have developed without undergoing the said phases. A clear illustration of such a state is Saudi Arabia whose development can be blamed on her rich natural resources. Rostow ‘s theoretical account besides fails to supply a clear nexus of the motion of one phase to the following and some features are similar across two phases. He besides argued that states were to larn from the developed 1s in their procedure to economic development but clip has proved him incorrect. Some developing states lag really far behind in every bit far as economic development is concerned even though they interact with the developed states.

Modernization suggests that poorness can be reinforced by authorities policies that interfere with the economic system every bit good as people ‘s or citizens cultural beliefs. Economic development is said to happen in states that embrace capitalistic inclinations such as East Asian states which have developed for their increased nest eggs, aggressive work moralss every bit good as following a market based economic system for case China.

Critics of the modernisation theory

The modernisation theory is criticized for reasoning that the US every bit good as other developed states have superior values than those embraced by other states. It is besides blames the hapless for their position quo, although it is rather clear that some factors beyond their control can be blamed for their quandary. ( Shannon 1989:6 ) . This theory is besides criticized for neglecting to set into history the function of interrelatednesss between states which affect their economic every bit good as societal conditions. The modernisation theory argues that developed states will be better off when they let the natural forces of competition take full charge in the economic system. It favors the free markets to trip economic advancement or prosperity. However, critics argue that it is impossible to hold free markets runing efficaciously as the function of the authorities can non be underscored. Government ‘s influence on the economic system is apparent when it interacts with the private companies to advance exports, restrict imports or even in the disincentive of the importing or production of certain goods. ( Lipsey & A ; Chrystal 2008:13 ) . The modernisation theory is besides criticized for being Eurocentric in its analysis of the 3rd universe states. It besides fails to appreciate or instead take into history that states can non be industrialized at the same rate.

Dependence theories

Harmonizing to the dependence theories, the nucleus significance of development was economic growing due to accretion which saw or instead led to the development of developing economic systems. It emphasized on the ‘auto-centric development ‘ or ‘national accretion ‘ . The dependence theory attempts to explicate why some states remain hapless for long periods of clip or why they are undeveloped. It adopts the facet of development of the hapless states by the rich or powerful states. This theory can be clearly explained by the mode in which the European states every bit good as the US have strong involvements in hapless states such as Iran and Iraq which are popular for their rich gift in natural resources exactly fuels. The statement here is that the hapless states are hapless due to the development by the rich or powerful states. A perfect illustration of the dependence theory of economic development is economic prosperity recorded in the 1600 by the European states which colonized Africa, Asia and the Americas as they searched for natural stuffs every bit good as market for their merchandises. Colonialism aimed at maintaining the undeveloped states hapless to cut down competition with the developed and powerful states. Britain would for case purchase inexpensive cotton from India, procedure it into fabric in their Millss before selling it at a higher monetary value in India and gain immense net incomes. They deterred the development of Indian Millss which would hold produced cheaper apparels. During the colonialism epoch, dependence was maintained for every bit long as the powerful and developed states controlled the political every bit good as military organisation of the hapless states. Although colonialism was shortly eliminated when it became really expensive to keep military personnels in foreign states, a new signifier of development was adopted. The developed states still intervene by directing military personnels every bit good as enforcing limitations which could be political or economical in nature to guarantee their sustained control and dependance of these states. They impose monetary value controls, duties every bit good as command their handiness to recognition. They besides control the monetary values of natural stuffs at really low rates and since most less developed states rely on such exports, they get minimum net incomes to reasonable economic development. Such control is defined or instead referred to as neocolonialism where control and dependance of the hapless by the rich is sustained although without the direct political every bit good as economical engagement. Poor states remain in immense debts and are forced to encompass the conditions that have been set by the rich states that loaned them. Multinational corporations besides work to reenforce the dependence degrees as they exploit the inexpensive natural stuff and labour that is offered in the less developed states. ( Chan & A ; Clark 1992:67 ) .

The dependence theory blames the powerful states for perpetuating poverty rates among the hapless states through colonialism, neocolonialism every bit good as through the transnational corporations. It can be used to explicate the economic development in the less developed states such as Africa and Latin America. It is nevertheless criticized on the evidences that some states such as Ethiopia were ne’er colonized yet they have non developed economically. Again, the transnational corporations are thought to hold a negative consequence on the developed states as they lead to the transportation of human capital, engineering every bit good as net income transportation that could hold otherwise been retained in their states. Again, some states have developed economic wise despite their being colonized by the western powerful states for case Singapore and Hong Kong. Their dependance on the western states for foreign loans and trade is deemed as the major ground behind their economic success reverse to the outlook. ( Bottomore 1991:137 )

The dependence theory argues that the rich states have a lasting advantage over the less developed states. The dependence theory seems to offer an account of why some states remain hapless even after they have embraced the values of modern societies. It explores the mutuality between the rich and powerful states and the hapless or low income states. The dependence theory suggests that economic development is realized as a consequence of external political, societal every bit good as economic influences on a state ‘s development policies. This theory is frequently used to explicate the economic conditions of the Latin America. Harmonizing to the dependence theory, the international system has a prevailing signifier of capitalist economy which could be fiscal, commercial or industrial in nature. The dominant states have a strong involvement in geting natural stuffs such as agricultural merchandises and minerals every bit good as inexpensive labour. There is besides a competitory grade in the capital concentration and competition in the power concentration and the signifier of trade embraced is mercantilist in nature. On the other manus, the Latin America state ‘s supply the natural stuffs to the developed universe every bit good as offer a market for the developed states merchandises.

Neo-liberalism theory

Neo-liberalism theory of economic development argues that there is nil particular with the developed states and that development is simply due to the acceptance of right monetary values while allowing the market forces work efficaciously. Neo-liberalism theories emphasize on the function of free trade and rational pick in economic growing and development. ( Harvey 2007: 1 ) . This theory is besides termed as neoclassical theory of economic development which favours reduced authorities control in the economic system due to the state that province engagement in an economic system led to inefficiencies that deterred economic growing and development. The statement here was that allowing the market forces take full charge of the economic system translated to efficient allotment of resources which had societal advantages excessively. The function of foreign assistance was besides highlighted as of holding negative effects on the economic system. The universe major fiscal establishments such as the World Bank and the International Monetary Fund embraced the structural accommodation programmes ( SAPS ) as neoliberal economic policies with the purpose of advancing economic growing and development. SAPS have nevertheless failed to convey about economic development but alternatively lead to the wretchedness of many in the less developed states. ( Elliot 2006: 24 ) .

Oppositions of free trade as a vehicle to economic growing and development argue that the 3rd universe states need just trade instead than free trade. This is attributed to the fact that states have varied comparative every bit good as absolute advantages and hence varied production degrees. Again, research workers have established a clear nexus between trade liberalisation and the major societal factors such as economic growing, reduced corruptness every bit good as increased democracy.

The neo liberalism theory of economic development can be highlighted to explicate the economic development in China, an East Asiatic state. Since following the 1987 structural reforms where China replaced the ab initio province controlled economic system with effectual market controlled economic system where the forces of demand and supply took full charge. There was the denationalization of assorted province owned belongingss, a fact that led to their increased efficiency every bit good as effectivity. The neo broad inclinations are apparent in the denationalization of authorities owned assets and the entire embrace of capitalistic inclinations. Capitalism has nevertheless been linked to other societal immoralities such as offense, corruptness unemployment every bit good as environmental issues. The inequality between the rich and the hapless has besides increased as the rich become richer while the hapless become poorer. ( Harvey 2007: 23 ) .

Harmonizing to Micheal Walton, in the article Neo, liberalism in Latin America good or bad or uncomplete ( 2004:166 ) , the neo broad attack to economic development can take two dimensions. One it leads to a displacement in the policies adopted in a state to prefer more trust on the market and secondly it leads to a decrease in the province engagement in the society. This theory can be viewed as a recent or modern theory as it started deriving popularity in the 1980s and 90 ‘s. The trial of clip has proved that for free market systems to give positive consequences, other factors must come to play and that it is non automatic that a market oriented economic system will trip economic growing and development. Such factors include the grade in which states resources are distributed every bit good as the structural policies which govern the mode in which the societal development and substructure are organized. The state ‘s political every bit good as societal establishments besides play a critical function in finding the consequence of economic growing through the neo-liberalism attack. Advocates of the neo liberalism attack of economic development argued that a displacement to the market oriented economic system would take to economic development and stableness every bit good as distribution of resources. Stability in this context would be financial and pecuniary in nature. Reliance on the markets or the forces of demand and supply and increased economic integrating was thought to hold increased growing effects. Income distribution was thought to be equally distributed as opportunities for corruptness would be reduced significantly. Competition would be boosted and this would take to increased quality production of goods and services ( Schuerkens 2007: 17 ) .

Indeed, modernisation theory and the neo liberalism theory have competently captured the ways through which economic growing can be achieved. Although incorporating built-in failings as can be discerned from the overruning unfavorable judgment against them, they intricately point out the cardinal ingredients nucleus to economic growing. The modernisation theory has outlined the importance of a state to switch from the traditional attack to economic operations to a modernised system if economic growing is to be accomplished. Although riddled with contention due to its conservative and firm clasp on to traditions, the instance of Japan is highlighted as the best explication of how modernisation is the nucleus way to economic development. Harmonizing to this theory, economic growing has been elusive to most Third World Countries due to their reluctance to encompass modernness choosing instead to lodge to their traditional, uneconomical and parochial patterns. Neo-liberalism has besides charted an alone way towards economic growing. It lays its accent on the market forces as the cardinal determiners of the economic system. For states therefore to accomplish an economic growing equaling that of the developed states, it is imperative that the authorities function in the economic system be lessened to a bare lower limit and the market forces be given room to boom. ( Schuerkens 2007: 19 ) .

Rostow failed to bespeak the demand of a fiscal substructure which could impart the nest eggs made to investing. Again there was no warrant that the investing made would take to economic growing. The demand for other substructures like instruction, roads, tracks and communicating were besides undermined and they are of import to register economic development. He emphasized on investing though he did non bespeak if it was efficient or it was used on luxury goods. The statement that states would larn and follow better production means that would guarantee economic development has failed the trial of clip as some states remain in the initial phases of development though others continue to progress.